What Happened?

Shares of behavioral health company Acadia Healthcare (NASDAQ: ACHC) fell 14.1% in the morning session after the company cut its full-year 2025 financial guidance after a review found it needed to set aside more money for legal costs. The company increased its professional and general liability reserves following an annual third-party review, citing higher expected expenses from patient-related litigation. This decision was driven by a 168% surge in claim frequency and less favorable reinsurance coverage terms. As a result, Acadia lowered its 2025 adjusted EBITDA forecast to a range of $601 million to $611 million, down from its previous guidance of $650 million to $660 million. Adjusted earnings per share guidance was also revised downward. In response to the news, Bank of America downgraded the stock from Neutral to Underperform and cut its price target to $13 from $21.50, pointing to the increased costs and risks.

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What Is The Market Telling Us

Acadia Healthcare’s shares are very volatile and have had 24 moves greater than 5% over the last year. But moves this big are rare even for Acadia Healthcare and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 12 days ago when the stock gained 7.6% on the news that comments from a key Federal Reserve official bolstered hopes for an interest rate cut. New York Federal Reserve President John Williams stated he sees “room for a further adjustment” in the near term, sparking a significant market rally. Following his remarks, the probability of the central bank cutting rates at its December meeting jumped from 39% to over 73%, according to the CME FedWatch tool. This positive sentiment provided relief to markets amid concerns over high valuations, particularly in AI-related stocks.

Acadia Healthcare is down 65.1% since the beginning of the year, and at $14.22 per share, it is trading 68.7% below its 52-week high of $45.41 from January 2025. Investors who bought $1,000 worth of Acadia Healthcare’s shares 5 years ago would now be looking at an investment worth $339.47.

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